If you want to get a mortgage or renew your mortgage, but all your money is going to pay off your debts and interest, there are some insolvency solutions that could help you, including a consumer proposal. This option allows you to avoid filing for personal bankruptcy while still being able to apply for a mortgage.
What is a consumer proposal?
A consumer proposal is an agreement negotiated with creditors to settle some or all of your debts. This agreement is negotiated with the help of a licensed insolvency trustee, who finds a compromise with the lenders in order to set up repayment terms adapted to your financial situation.
The consumer proposal can cover some or all of your debts as long as the total amount is less than $250,000, not including the mortgage. This procedure offers you the opportunity to pay off the debts through new and more flexible terms by lowering the monthly payments through the cancellation of the interest rates, for a maximum period of 5 years.
Consumer proposal and mortgage: Can I keep my house if I file a consumer proposal?
A consumer proposal offers you many advantages, including protection of your assets against foreclosure. You can keep your mortgage with peace of mind. The consumer proposal allows you to pay off unsecured debts such as credit cards or personal loans. The most important thing is to have a financial plan in place that you are able to honor in order to pay off your debts and keep your assets. Keeping up with the payments will ensure that the assets you own are protected.
Benefits and consequences of a consumer proposal
The consumer proposal offers many advantages:
- Reduction of monthly payments
- Cancellation of interest rates
- Fixed payments
- Payment terms adapted to your borrowing capacity
- Preservation of your property
- Protection against wage garnishment and collection calls
- Cancellation of legal actions and risk of prosecution
The consumer proposal frees you from creditors
Once you file a consumer proposal, the licensed insolvency trustee acts as an intermediary between you and your creditors.
This frees you from the harassment often put forth by creditors or debt collectors. In addition, once your claim is accepted, all legal proceedings are dismissed, and you are free from collection calls.
An insolvency solution that avoids bankruptcy
Opting for a consumer proposal allows you to find a less drastic solution than filing for bankruptcy. Although this option affects your credit report, it gives you the time you need to re-establish your finances and get back on your feet. The various benefits of a consumer proposal allow you to resolve your financial situation and save money.
One monthly payment for all your debts
The purpose of negotiating a new agreement with creditors is to develop a repayment plan that suits your borrowing capacity. This agreement covers all the details regarding payment terms, including:
- Lower monthly payments
- Fixed payments that do not vary with your income
- A longer repayment period of up to 5 years
- A cancellation of interest rates
When the consumer proposal is accepted, you will only have to make one payment each month. The authorized insolvency trustee will act as an intermediary with the creditors and distribute the money among the various lenders. This will make it easier to establish a budget and manage your finances.
Ideal protection against the seizure of assets
A consumer proposal is a more attractive alternative to filing for bankruptcy because it offers protection against the seizure of assets. It allows you to keep the equity in your home, your car, your RRSPs, etc. On the other hand, once the proposal is accepted, you are also protected against the seizure of bank accounts or wages as well as lawsuits that may be launched by creditors.
A consumer proposal allows you to get out of debt and regain control of your finances. However, be aware that it affects your credit rating. The score goes down to R9 for up to three years after the repayment period. This rating on your credit report reduces your chances of obtaining a loan, especially at low interest rates.
What happens when you file a consumer proposal?
Once the consumer proposal is filed, the agreement will be reviewed by the creditors. Your licensed insolvency trustee will negotiate to find the ideal agreement and ensure that the proposal is accepted by the creditors. You will then have a single monthly payment to make on a regular basis for a set period of time to pay off your debts.
It is important to meet the deadlines when repaying the consumer proposal. In most cases, you will also be required to attend counseling sessions to learn how to better manage your finances and restore your credit rating. Once the repayment period is over, you will be free of all your debts.
What is the impact of a consumer proposal on a mortgage?
The consumer proposal is for unsecured debt only and does not affect your mortgage payments. You must continue to pay your secured debts while respecting the terms of your mortgage. Unlike mortgage refinancing, this solution does not add any additional costs to your home and is tailored to your borrowing capacity.
How much can I borrow for a mortgage?
Can I renew my mortgage after a consumer proposal?
Yes, it is possible to renew your mortgage after a consumer proposal. We advise you to seek the help of a mortgage broker to avoid falling into debt and to manage your finances. He or she will help you choose a mortgage lender you can trust and work out a mortgage contract that respects your financial capacity.
Be aware that financial institutions take into account your discipline and your respect for deadlines. Therefore, if you have accumulated late payments on your mortgage, it would be wise to catch up before considering a renewal. Furthermore, following a consumer proposal, your credit rating is affected, which reduces your negotiating power for a mortgage renewal.
Mortgagees consider your income stability, down payment and credit history before granting a loan. So take the time to rebuild your credit rating and save enough money to ensure financial stability in order to get a mortgage renewal without the risk of debt accumulation.
When to refinance your mortgage?
How can I maximize my chances of getting a mortgage?
The consumer proposal offers you the opportunity to reduce your monthly expenses and put money aside. If you are interested in getting a mortgage, it is important to take advantage of this relief in your financial situation to make a savings plan. We advise you to establish a new budget that allows you to save money for the down payment.
To avoid going back into debt, always keep an emergency fund aside and make sure you always meet the repayment deadlines to maintain a good payment history. This discipline allows you to re-establish your credit record during and even after the consumer proposal. Be aware that lenders pay special attention to credit scores in order to approve any mortgage loan.
It is easier to get a mortgage after a consumer proposal, especially if you have met the payment deadlines. If you want to get a mortgage in conjunction with a consumer proposal, you should save enough money for a down payment and then seek the help of a mortgage broker to get a loan that fits your financial situation.
Bank mortgage vs private lender?
Mortgage services
At Refinancement Hypothécaire, we listen to our clients’ needs and take the time to study their files in order to provide them with reliable services and personalized advice. We help Quebec residents obtain the mortgage loan that suits their financial situation.
We offer you the possibility of accessing a credit or a mortgage through an alternative loan from a private lender if traditional loans are not suitable. If you already own a property such as a house or a business, a mortgage renewal can be the ideal solution to benefit from a capital at an advantageous interest rate.
